Clean Seas Seafood Ltd

CSS Details

Witnessed Profit turnaround in FY17:Clean Seas Seafood Ltd (ASX: CSS), the global leader in full cycle breeding, production and sale of Yellowtail Kingfish, had witnessed a healthy sales growth in FY16 with fish health and survival being excellent; and had maintained its FY17 guidance with target sales growth to 2,500 tonnes. Continuing with the result, robust sales growth at higher farm gate prices (up 18% for large fresh fish) led the FY17 profit after tax of $0.2 million, which was up $9.2 million over FY16. Sales was reported to be up 29% to 2,287 (excluding the one-off FY16 clearance sale). The result received support from excellent fish health, condition and survival rates. There was a 35% rise in cash receipts from customers. The group also rebranded its premium kingfish as Spencer Gulf Hiramasa Kingfish (being voted the “Best Fish” at the 2017 Australian food awards). CSS’ new Adelaide in-house processing facility was also reported to have commenced operations and exports were said to begin from H1 FY18.

Going forward, the group expects farm gate prices to increase from H2 FY18 at the back of increased selling prices and reduced processing costs at Royal Park, while cash profits for all products are expected to rise within three to four years. Revenue growth of about 21% to 33% is expected for FY18. However, the group has highlighted that litigation has continued with the feed company and a claim cost of about $34.5 million to $39.1 million has been assessed. Mediation or trial has been said to start in 2018. While any upside from litigation can boost the momentum, the group would need to bear the litigation costs as assessed. The group has also highlighted about significant retained tax losses of about $88 million under its FY18 outlook.
 

Sales Revenue (Source: Company Reports)

In last six months, the stock has moved up over 112% (as at September 18, 2017), and is trading at a higher level. Owing to volatility and a possible profit booking, the stock fell about 4.3% on September 19, 2017. Meanwhile, director Hagen Stehr has disposed about 542,000 ordinary shares of his indirect interest in Australian Tuna Fisheries (Clean Seas’ largest shareholder). Given the trading scenario and most of the positives factored in the stock price, we believe it is time to gain profits on CSS, and give a “Sell” recommendation at the current price of $ 0.067


CSS Daily Chart (Source: Thomson Reuters)

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